The Santa Clara County Board of Supervisors approved suspension of a number of capital improvement projects and reallocation of $17.7M from the County's Reserve Funds, on March 2, to keep the Fiscal Year (FY) 2010 budget in balance. It is customary for the Board to make mid-year budget adjustments to ensure it meets its legal obligation to have a balanced budget by June 30. The Board's action followed a presentation by County Executive Jeffrey V. Smith and Budget Director Leslie Crowell on the status of the current budget, actions underway to balance the budget and an assessment of revenue shortfalls projected for next fiscal year, which begins on July 1.

"During the past two fiscal years we have had to reduce the budget by about $600M," said Smith. "That is a huge amount of money and it doesn't look any better for the next five years."

Referring to the impact of the continued recession on county revenue projections, Smith indicated it usually takes four to five years following an economic recovery for local governments to see improved revenues.

"We have to fundamentally change the way we operate," Smith continued. "Change is difficult for people to tolerate but we've very few options. Five years from now we'll be a completely different organization

"Nearly 25 percent of mortgages are underwater, driving foreclosures and depressing real estate values and the property taxes the County would normally receive," said Crowell. "Consumer spending is down, too, and affects sales tax revenue."

The County Executive has already taken a number of steps to mitigate the negative projected balance, including procurement controls to curb departmental spending, tightening the hiring-freeze and reclaiming unspent balances normally carried forward for departmental use the following year. Additionally, Smith has begun an entirely new budget preparation process that requires departments to develop cost-saving ideas (by changing the way they conduct business) and submit them for review and prioritization by executive managers across departmental lines. Smith also plans to meet with unions and community-based organizations.

"So far, a few good ideas have surfaced," said Smith. "We'll work over the next several weeks to devise innovative strategies to address the budget."

Both Supervisors Don Gage (District 1) and Liz Kniss (District 5) decried the San Jose Redevelopment Agency's (RDA) failure to live up to its obligation to provide $21.4M in Pass Through funds owed to the County.

"I want the public to understand exactly how this revenue loss is impacting our residents," said Gage. "These are funds the City of San Jose agreed were to come to the County and without them we are forced to cut services."

"Part of the RDA funding was earmarked for the new hospital. I find it very troubling that this failure to live up to its contractual obligation means services will be lost," Kniss remarked.

Projects that were to be supported by the RDA funds and now to be suspended are - Timpany Center ($2.5M), purchase of vacant VTA parcel at First/St. James streets ($1M), Sheriff evidence and record storage ($1.7M) and main jail security upgrades ($730,000).

Suspension of these RDA-funded projects will be combined with savings from other suspended capital projects for a total savings of $9.1M. Although these projects are being suspended, the County intends to pursue legal remedies for the RDA's failure to protect its financial interests.

Modifications for Current NeedsThe Board also approved the addition of $223,000 to the Public Defender's budget to provide for the legal representation of defendants accused of misdemeanors. The ongoing, annual cost will be $800,000.

The Social Services Agency, which is seeing increased demands for services from families and individuals affected by the recession, will receive an extra $614,000. An additional $233,000 goes to the Public Health Department to focus on health disparities and health inequities. The Center for Leadership and Transformation receives $196,000 to position the County for the type of organizational change that will be required. $2.2M will be paid to the Courts to complete the transfer of facilities to the state required by law.

"The state's dismal fiscal outlook is of concern to the County as it continues to raid county revenues," said Supervisor Dave Cortese, District 3. "I have the same feeling I had as a child playing the 'lights out' game. It's like walking around in a dark room waiting for something to hit you."

"Our current-year outlook would be worse if we hadn't set aside reserves in anticipation of the State budget reductions," said Supervisor Ken Yeager, President of the Board of Supervisors. "Otherwise, we'd have to face laying off hundreds of employees, as so many other counties now must do."

Looking Ahead to FY 2011The forecast for FY 2011, as in the previous eight years, continues to be grim because of the economic downturn. The County is projecting a General Fund deficit of $230M - $250M and the County Executive is leading a budget process asking for deficit reductions from County Departments. Budget workshops are planned for May 18 - 20, 2010.